Austin Office Project Might Face Uphill Climb

The two just-announced projects for Downtown Austin–a new museum facility and a Class A office tower–probably face rather divergent short-term futures.  On one hand, the Austin Museum of Art presumably knows how it will fill its planned 40,000-square-foot building, to be constructed on roughly half of a 71,000-square-foot site owned by the museum. On the other hand, it’s by no means certain how soon the demand will exist to support the 30-story, 425,000-square-foot Museum Tower announced for the other half of the site.  The Frost Bank Tower, Downtown Austin’s most recent Class A high-rise, has been doing well for leasing, but only by cannibalizing other buildings, Randy Williams, managing director for Integra Realty Resources/Austin, told CPN. The 33-story, 525,000-square-foot building was completed in 2004.  The Austin MSA’s office market saw a slight increase in vacancy rates over the past year, he said, because of new construction the market couldn’t fully absorb. Nonetheless, he noted, rents did go up “substantially.”  Integra’s figures show Austin’s CBD as totaling nearly 8.6 million square feet of office space, with a vacancy rate of 16 percent. Equally worrisome, Integra reports an average annual net office absorption of 300,000 square feet, with 1.8 million square feet slated to be delivered (not including Museum Tower) through 2011.  Hines vice president Travis Overall, however, told CPN. that most new construction in the Austin MSA has been in the northwest and southwest suburban markets, and that Downtown Class A occupancy has been stable. He also pointed out that several factors, including a planned light rail system Downtown and significant growth of Downtown residential, are strengthening the CBD’s appeal to office tenants. The new 360 Condos project, he said, is heavily presold, and the city is projecting that downtown will gain 4,000 new residents over the next few years.  Assuming that preleasing is acceptable, Overall said, Hines is hoping to break ground on Museum Tower in early 2009 and deliver the building in early 2011.  A Cushman & Wakefield Inc. report noted that Austin’s economy added 22,500 jobs in 2007, reaching a job growth rate of 3.1 percent, more than double the national average. Electronics and healthcare were pegged as two active sectors.